It is not uncommon to see companies perform well in the years after insiders buy shares. On the other hand, we'd be remiss not to mention that insider sales have been known to precede tough periods for a business. So shareholders might well want to know whether insiders have been buying or selling shares in Mesoblast Limited (ASX:MSB).
Do Insider Transactions Matter?
It is perfectly legal for company insiders, including board members, to buy and sell stock in a company. However, rules govern insider transactions, and certain disclosures are required.
We would never suggest that investors should base their decisions solely on what the directors of a company have been doing. But equally, we would consider it foolish to ignore insider transactions altogether. For example, a Harvard University study found that 'insider purchases earn abnormal returns of more than 6% per year.
The Last 12 Months Of Insider Transactions At Mesoblast
Over the last year, we can see that the biggest insider purchase was by Independent Non-Executive Director Donal O’Dwyer for AU$100k worth of shares, at about AU$1.18 per share. Although we like to see insider buying, we note that this large purchase was at significantly below the recent price of AU$3.81. While it does suggest insiders consider the stock undervalued at lower prices, this transaction doesn't tell us much about what they think of current prices.
In the last twelve months Mesoblast insiders were buying shares, but not selling. They paid about AU$1.36 on average. It is certainly positive to see that insiders have invested their own money in the company. However, you should keep in mind that they bought when the share price was meaningfully below today's levels. You can see a visual depiction of insider transactions (by individuals) over the last 12 months, below. If you click on the chart, you can see all the individual transactions, including the share price, individual, and the date!
Mesoblast is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Insiders at Mesoblast Have Bought Stock Recently
It's good to see that Mesoblast insiders have made notable investments in the company's shares. We can see that Independent Non-Executive Director Donal O’Dwyer paid AU$100k for shares in the company. No-one sold. This could be interpreted as suggesting a positive outlook.
Insider Ownership of Mesoblast
Looking at the total insider shareholdings in a company can help to inform your view of whether they are well aligned with common shareholders. We usually like to see fairly high levels of insider ownership. Mesoblast insiders own about AU$322m worth of shares (which is 13% of the company). This kind of significant ownership by insiders does generally increase the chance that the company is run in the interest of all shareholders.
So What Does This Data Suggest About Mesoblast Insiders?
It is good to see the recent insider purchase. And an analysis of the transactions over the last year also gives us confidence. But we don't feel the same about the fact the company is making losses. When combined with notable insider ownership, these factors suggest Mesoblast insiders are well aligned, and quite possibly think the share price is too low. Nice! While we like knowing what's going on with the insider's ownership and transactions, we make sure to also consider what risks are facing a stock before making any investment decision. To assist with this, we've discovered 2 warning signs that you should run your eye over to get a better picture of Mesoblast.
Of course Mesoblast may not be the best stock to buy. So you may wish to see this free collection of high quality companies.
For the purposes of this article, insiders are those individuals who report their transactions to the relevant regulatory body. We currently account for open market transactions and private dispositions, but not derivative transactions.
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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Thank you for reading.